Adjustable rate mortgages are attractive to many home buyers because of the lower loan payments in the first years of the mortgage. The rate can be below fixed rate mortgages, but this is not always true. Home buyers should examine how these loans work and how they differ from other alternatives. This article offers an introduction to adjustable rate mortgages in MA.
An Introduction To Adjustable Rate Mortgages In MA
Interest Rate Changes and Time Periods
Adjustable rate mortgages have a lower interest rate for a certain period of time and may adjust at certain intervals thereafter. For example, a 5-1 ARM may remain at the same rate for the first five years and fluctuate every year after. The fixed rate period and the periods at which it will fluctuate are different for each mortgage. It is also possible that a shorter fixed term will have a lower starting rate than a longer one.
Adjustment Basis
Interest rates on adjustable rate mortgages are generally measured by a publicly referenced index and are outlined in the loan terms. Many refer to a national mortgage index, which is based on borrowing patterns in the country. The interest rate may either increase or decrease depending on that index and a particular margin above it (as referenced in the financing terms). Indexes constantly change, so future rates remain unknown until the specific adjustment date approaches.
Rate Increases
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